TheStreetSweeper issues a warning for investors of Professional Diversity Network (IPDN).
IPDN stock has gone Wild, Wild West following widely misunderstood investor announcements … including one regarding a Chinese investment group that we found lists its business address as a post office box on an island.
Now TheStreetSweeper believes this stock is positioned to get shot down to size.
Here's an executive summary:
*Whenever a company lists its address as a post office box on an island, as IPDN’s Chinese investor does, it’s a red flag … indeed it’s TheStreetSweeper’s skull and crossbones.
*Cheap $2 warrants for 246,445 shares of IPDN stock were set free on Feb. 14. The lender holding that stock may now sell any or all shares.
*If many of those cheap shares are sold, other investors holding more expensive stock face getting their share value substantially watered down.
*Under Nasdaq delisting threat and eager to please a sell-happy lender, IPDN recently pulled a reverse stock split. Stock typically jumps initially before dropping back to pre-split levels or worse.
*Revenue is dropping, partners are walking away, customers are mad.
*Cash burn’s high, money’s tight and a dilutive stock offering or debt appears likely within a quarter or two.
*1. Warrants: Just Set Me Free.
IPDN has set up the paperwork so a stockholder, White Winston Select, can sell off the lion's share of its stock...Now.
White Winston loaned $5 million to the company in March 2016. In exchange, in one piece of the current dilution, the lender picked up some warrants for 246,445 shares of stock for just $2 apiece. Now the lender wants to unload some stock.
The Securities and Exchange Commission just approved this stock sale through a notice of effectiveness dated Feb. 14, 2017.
The seller may dump any or all shares at will. IPDN “will not receive any proceeds from the sale of these shares.”
The loan deal is now terminated. It's obvious that White Winston wants to cash in the cheapo stock and get the heck out of Dodge while the gettin's good.
There are a couple of highly insulting aspects of this deal: First is dilution ... average stockholders face likely getting their share values watered down when the stock priced at a fraction of today's stock gets sold in the market.
Second is the set-up ... read on. You'll love this one...
*2. The Set Up
The friendly folks at Chicago-based IPDN set up the stock-selling event way back in September.
The poor ol' stock had been selling for only about $0.37 a share as recently as last March. Month after month, the stock continued to trade for under a dollar.
Nasdaq issued a delisting notification warning that the stock would lose its listing unless it traded for at least $1 for 10 consecutive days. Banishment to the OTC Markets often triggers a significant stock price drop and can even lead to a company's death spiral.
So in September, IPDN put the "magic of the reverse stock split" to work. Reverse stock splits are commonly used by desperate companies which typically bury the old investors and look to cash in on new investors. The chart below shows what happened to IPDN amid the increased trading volume:
"Magic" Of The Reverse Stock Split
(Sources: Yahoo, TheStreetSweeper)
Presto! The stock closed at $0.72 pre-stock-split and $5.60 after the split.
Now IPDN could save its Nasdaq listing and IPDN's lender could saddle up and begin selling its cheap stock for about eight times (thank you, 1:8 stock split) more than it could possibly expect before the split.
Reverse stock splits like this usually hold up the stock price for just awhile. But the run off the cliff may lie just ahead ...
*3. Joke Of A Business; Partners Walk Off; Customers Irate
IPDN says it tries to match people's skills and cultural similarities to promote social growth and career opportunities.
(Source: Company SEC filing)
But IPDN has its hands full dealing with its own partners ... much less successfully putting individuals together as its mystifying mission statement envisions.
IPDN has watched in recent years as Apollo Education Group, Monster and even LinkedIn walked out on the company.
Consequently, its flagship segment which operates NAPW or National Association of Professional Women Network has suffered a 30% decline in revenue over nine months to $3.8 million.
That's not shocking considering the terrible reviews customers have posted with the Better Business Bureau. The BBB gives NAPW an "F" grade and notes 98% of customer reviews are negative.
Many angry customers felt they were misled about membership prices and fees for processing and set-up and much more. Consumers saw free membership ads for NAPW on LinkedIn. But when they contacted NAPW and tried to take advantage of the free membership, they said they found out they couldn't join for free.
A reporter with The Establishment wrote an interesting piece in 2015 about her experience with NAPW:
Ms. Gloudeman wrote:
"Yet despite NAPW’s impressive-sounding pedigree, and (celebrity Star) Jones’ inspirational soundbites, hundreds of women have not only shared negative experiences about the organization, but in some cases, gone so far as to call it a scam."
*4. The Chinese Investment Group
Now that IPDN's reputation is unraveling and major partners have walked away, the company is attractive to Chinese investors.
Cosmic Forward is a Chinese fund that lists its business address as a post office box on an island east of Africa :
This offshore fund is located in Seychelles, an island considered a haven for questionable shell companies and money-laundering activities.
SEC filings call Cosmic a private company "wholly-owned by a group of Chinese investors."
These Chinese investors are actually IPDN's chief executive, Maoji (Michael) Wang, and co-chairman Jingbo Song, plus two other individuals Yong Xiong Zheng and Nan Nan Kou.
Average Joe investors likely misinterpreted both the November and January announcements on Cosmic. They probably thought a big, exciting institution had stepped up to bankroll the company.
(Source: Company press release)
(Source: Company press release)
But...the real investors are two IPDN leaders and their two buddies with an offshore fund.
The company should be more transparent. It needs to clearly state what's going on for the sake of average investors who buy into these highly speculative, reverse-take-over companies like IPDN.
*5. Deteriorating Revenue; Rising Losses; Looming Stock Sale
Meanwhile, IPDN's overall finances have been deteriorating - sales fell 7% to $6 million last quarter - while losses jumped 58% to $-1.3 million.
But thanks to the recent $2.8 million stock offering, IPDN does have a little cash right now:
(Source: Company SEC filing,TheStreetSweeper)
But that cash can't cover IPDN's expenses for long at this burn rate:
(Source: Company SEC filing)
So in about one more quarter or so, guess what?
IPDN will need to raise more money ... likely through a convertible-to-stock debt deal or a stock sale. Either way, investors may likely see their stock get watered down.
Until the company can turn this pony around, quit producing laughable investment announcements, stop infuriating customers and somehow establish a viable business … this stock is a zero.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in IPDN and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]